Court Rules on Reasonableness of Copyright Licensing Fees

A federal district court in New York ruled that Broadcast Media Inc. (“BMI”) may collect 2.5% of Pandora’s total revenue in exchange for licenses to publicly perform copyrighted music. (Read the full opinion here)

BMI represents music copyright holders, and licenses the right to publically perform its clients’ songs on a non-exclusive basis. Pandora is an online music streaming service that has licensed its music from BMI since its inception in 2005. It wasn’t until 2011 when BMI decided that its 1.75% rate was “inappropriate for the emerging music-intensive streaming service,” and so it increased its rate to 2.5% of gross revenue from its customers like Pandora.

BMI created several new licensing agreements, and in 2012 BMI and Pandora reached an impasse. From there, BMI filed this petition with the Court to determine a “reasonable” license fee, and that 2.5% of gross revenue should be considered reasonable.

In response to this petition, Pandora argued that it is comparable to broadcast radio stations and should therefore pay a rate of 1.7% of their gross revenue for such licensing fees. Pandora further asserted that because it directly competes with radio broadcasting stations for listeners and advertising revenue it should be treated like broadcast radio.

The Court was unpersuaded explaining that Pandora users can give detailed, responsive feedback to the company, as well as customize the music they hear. Pandora also offers “virtually uninterrupted music streaming,” which greatly differs from the weather and traffic reports, advertisements, news, and “disc jockey chatter” that traditional a.m./f.m. radio broadcasts offer. Another major difference was the number of actual songs that Pandora plays per hour – about 15 – while the average terrestrial radio station plays only 11. Despite the Court’s inability to put Pandora in a specific category of radio, it concluded that it should be treated like its other music streaming competitors and be responsible for 2.5% of its revenue to BMI for the years 2013 – 2016.

The Court noted in its opinion that BMI had license agreements with other music streaming services similar to Pandora such as Spotify, Rdio, Rhapsody, and Apple iTunes Radio. BMI was charging anywhere from 2.5% to 4.6% of gross revenue from these companies.